One of the best guides to your credit score is the web site of the Fair Isaac Company that developed their scoring method at www.myfico.com. They call it the FICO. Each of the three main credit bureaus has a different name for it. Each Bureau also has subtle differences in how they calculate your personal score.

The FICO score works out to a number between 400 and 800 . In this case, it’s better to have a higher number. Several different factors go into the credit score, but one of the most important is your timeliness in paying bills. The difference in interest rates (APR) for people with different credit scores is quite significant.

In the example the Fair Isaac web site used to use, a person with a score of 500 to 599 could expect to pay close to 9.28% APR for a loan, while a person who had a score of 720-850 could acquire the same 30-year fixed-rate mortgage for 5.771% APR. Over the course of a 30-year mortgage, this amounts to a huge difference in payments.

On a $150,000 loan, the lower interest rate of 5.771% would make the monthly payment $877 and the total interest paid  (cost of borrowing) would amount to $165,850. If the person with a lower credit score applied they would have a loan payment of $1,238 and the total interest payment of $295,772. A difference of over $100,000 over the course of the loan would be the result.